POLICY IMPLICATIONS OF THE
NEW INFORMATION ECONOMY
William H. Melody
We can perhaps assume that the use of a medium of communication over a long period will to some extent determine the character of knowledge to be
communicated and suggest that its persuasive influence will eventually…… lead to the emergence of a new
civilization.
H.A. Innis, (1950) Empire and Communication
INTRODUCTION
An ever more popular theme in the scientific literature, government policy documents and the popular press, is that technologically advanced economies are in the process of moving beyond industrial capitalism to information-based economies. This transformation is expected to bring profound changes in the form and structure of economic, social, cultural and political systems. European Union (EU) integration and the North American Free Trade Agreement (NAFTA) are just two illustrations of this ongoing restructuring of economies and societies ( Melody 1985;a).
This transformation is being driven by the development and pervasive application of information and communication technologies and services (ICTS). The electronics, computer, telecommunication, media and information content industries constitute a $US trillion-plus global industry sector. It is the fastest growing sector of the global economy and is expected to remain so for the foreseeable future. Most national governments are counting on these industries to provide the primary stimulus to their future economic growth.
If one were to believe the “blue sky” speculation and industry promotion about the technological and service possibilities in this field, one would quickly conclude the new ICTS will solve all of society’s problems. A more realistic assessment of the process of transformation to an information economy may provide a little deeper understanding and help fashion more realistic policies by governments and market decisions by industries. (Melody 1996).
This chapter examines some characteristics of “information” in the new information economy, and the important policy issues and implications they raise. The term “information economy”, rather than the currently popular “knowledge economy” is selected deliberately because – as this chapter will demonstrate - it is not at all clear that an expansion of information in the economy will necessarily lead to an expansion of knowledge. This remains to be demonstrated and is likely to depend significantly on the development and application of effective government policies at both national and international levels. This chapter focuses on the common general characteristics of information economies, and does not take up the very important issues arising from the great differences among national economies. Hence the use of the generic term, “new information economy”.
MAJOR FORCES DRIVING ECONOMIC
TRANSFORMATION
The primary forces driving the transformation of national, regional and global economies are dramatic changes in technologies, policies and markets - the combination of the development and increasingly pervasive applications of ICTS on the one hand, and the worldwide movement to market liberalization and deregulation on the other. The conversion of telecommunication (telecom) networks and all forms of communication and information content to digital standards is creating an electronic network foundation that facilitates exchanges and transactions of all kinds. Electronic commerce and the next generation Internet represent the next step in this process. Together with liberalized markets and reduced barriers to trade, this will ensure the 21st century information economy is primarily an international, or even global economy. (Sheehan and Tegart 1998).
In an agricultural economy, land is the most valuable resource attracting investment capital. In an industrial economy, manufacturing plants, machinery and other forms of physical capital are the focal point of investment activity. In the information economy, the expectation is that people will be the central resource attracting investment because information is essentially produced, stored and applied by humans. Whereas the industrial economy was an era of physical capital with labour employed to facilitate its needs, the information economy is expected be an era of human capital with investment in the skills, competences and capabilities of people being the central activity.
This suggests that the information economy can provide for a considerably higher level of human development than the industrial economy, for the conversion of what we know as the “labour force” into information or knowledge workers, and for a significant expansion in investment in education, training, research and development – the major formal knowledge generating and distribution activities. It also suggests the possibility for a more widespread distribution of the wealth generated in the knowledge economy because the human resources attracting this increased investment are also workers and consumers.
Therefore, the most important elements of the new information economy that require examination are,
1)the increased generation and use of information as both an economic resource and a product exchanged in markets;
2)the development and use of advanced high speed telecom networks – the information infrastructure – for electronic commerce and related next generation Internet activities;
3)a much greater emphasis on the role of human capital as the principal producer, repository and disseminator of information;
4)continued major market deregulation at both national and international levels.
THE INFORMATION/COMMUNICATION
FOUNDATION OF ECONOMIC INSTITUTIONS
The functioning of any economy or society depends upon information, and the efficient and effective communication of it among society's members. Information is generally interpreted as a 'stock' concept, a store of knowledge and values. Communication is a 'f1ow' concept, ref1ecting the process of transmission and exchange of information, knowledge and values, which itself creates information inf1uencing knowledge and values. 'Information' and 'communication' provide different analytical perspectives on essentially the same phenomena. An examination of the information characteristics of any economy must focus on its communication characteristics. New communication networks are often the driving force behind the generation of vast quantities of information.
In the broadest sense, the social, cultural, political and economic institutions in any society are defined in terms of the characteristics of the shared information within and among those institutions. (Innis 1951). In the narrower economic sense, it has been recognized generally that the most important resource affecting the economic efficiency of any economy, industry, production process or household is information and its effective communication. Now that entire industries and major sectors of technologically advanced economies are devoted to information - the search for it, the creation of it, the manufacture, storage, classification, summarization, selection, editing, interpretation, hoarding, purchase, sale, and broadcast of it - the economic characteristics of information are beginning to be recognized as an area in which precious little is known.
Yet it is apparent that the characteristics of information define the state of knowledge that underlies all economic and social systems. They affect, the nature of economic markets and the structure of industry. They affect the internal structure of organizations ranging from corporations to government agencies, political parties, universities, labour unions, libraries and volunteer groups. They affect the formation of social and cultural networks; the nature of work and leisure; the role and definition of education; the structure, content and effective control of the mass media; and the information environment through which public opinion is formed.
Equa1ly significant is the fact that institutions also generate information for the external environment that is employed by organizations and individuals for decision-making. For any particular institutional structure in society, there wi1l be an associated information and communication structure that will influence how that society functions. Some institutional structures will provide stronger incentives for the creation and diffusion of information than others. Moreover, the type and quality of information is likely to change as a result of changes in institutional structure. If institutional change is desired, it may be necessary to change the information structure as a prerequisite to, or as an essential aspect of, effective institutional change.
The importance of information flows and communication patterns to the establishment and maintenance of particular institutions has been understood since earliest times. Trade routes and communication links were deliberately designed to maintain centers of power and to overcome international comparative disadvantages. Britain still benefits substantially from its historica1ly established communication links with its former colonies, long after the empire's formal demise. Universal telephone service was adopted as a policy objective in the US and other countries to encourage economic and social interaction within the country as a way of promoting national unity. The EU is attempting to foster a new European identity by promoting increased communication and information exchange as a basis for stimulating increased trade among its member countries and completing the single European market.(Innis 1950).
SOME CHARACTERISTICS OF INFORMATION MARKETS
In reality, of course, all societies have been information societies. The most significant change between technologically advanced societies and the oral tradition of the Greek city-state - still practised by some native cultures today - is not in the role of information in society, but in the way that information processes are institutionalized. The dominant form of information creation and exchange has shifted from oral discourse flowing outside the bounds of formal market arrangements to the establishment of information generating, storage and transmission institutions, the commodification of information and its exchange through markets. Perhaps the most significant change is not the volume of information, but the structure, the distribution, the institutions, and the dependence on particular institutions.(Melody 1987).
Information is often regarded as something equivalent to a natural resource, a mother-lode of objective, unbiased facts to be sought out by diligent search. For example, this view underlies such concepts as 'freedom of the press' in Western democracies. Although the press has been recognized as having biases of its own that influence the direction of its search, the information that is found, and how it is interpreted, there is a classification of information that can be analysed usefully as having the characteristics of a primary resource, an information commons for society.
The stock of knowledge in society at any one time, that is, the skills and education of the populace, the detailed factual information relating to such things as the working of production processes, the interrelationships and interdependencies of different sectors of the economy etc., collectively represent a primary resource of society. The value of this stock of knowledge to society depends upon how pervasively it is spread throughout society, and upon the institutions for maintaining, replenishing and expanding the stock of knowledge, i.e., its education and training system, and research generating new knowledge. Economic and social benefits come in the form of improved decision-making of all kinds throughout the economy.
Once information has been generated, the cost of replicating it is very much lower than the cost of generating it in the initial instance. The consumption of information by one user does not destroy it, as occurs with almost all other resources and products. The information remains to be consumed by others, the only additional costs being those associated with bringing the same information and additional consumers of it together under conditions where it can be consumed, i.e., learned. And once a given level of penetration is reached, a multiplier effect comes into play with many types of information, as the information is spread throughout society by informal communication processes outside the formal processes of learning and training.
Hence, although the costs of adding to the stock of knowledge may be very great there are generally significant economies in distributing that information throughout society, and to other societies if the incentive exists to do so. The implications of this economic characteristic of relatively low cost replication of information can be extremely beneficial under some circumstances such as the spreading of knowledge throughout society, for example, information about AIDS. But it can create special problems and difficulties under other circumstances, for example, for a smaller society attempting to protect its culturefrom being engulfed by the spread of information and values from a dominant neighbour.
Unfortunately, in the new age of information, much of the new information that is generated has its greatest economic value in scarcity rather than in widespread distribution. For example, information that has become important as a resource input to industrial, commercial and professional activities is specialized information sought to provide 'inside' or superior knowledge of the behaviour of consumers, suppliers, competitors, government decision-makers, etc. In essence, in imperfect economic markets, this inside information for private consumption strengthens the negotiation or market power position of the organizations or individuals that have access to it. Such information may or may not be costly to obtain, but its economic value clearly lies in its scarcity, that is, in the monopoly of information. Once such information becomes generally known to all interested parties, its economic value dissipates drastically.
Specialized information services for the private consumption of a restricted clientele are springing up almost daily. They range from special research studies of the details of international markets for transnational corporations to confidential assessments of the negotiating strength of a specific customer, competitor, trade union, or government. They include remote sensing satellite data identifying the detailed swimming patterns of schools of fish, and pinpointing the location of mineral resources and the progress of crop growth in distant countries. They include the DNA of specialized crops and even people in distant lands. In recent years there has been a significant increase in claims of intellectual property rights (IPR) over an ever increasing range of information, and even basic data that may have future economic value.
Many governments have taken steps to attempt to restrain the march of information IPR and markets into the details of people's personal lives and to regulate the conditions of access to certain kinds of data banks, for example, credit, medical and tax files. The pursuit, sale and use of information in accordance with the incentives of the marketplace clearly cannot be totally unrestricted. But the production characteristics of (1) the relatively high costs of establishing most databases and information services; and (2) the relatively low costs of extending the market for services already created; provide a powerful tendency toward centralization and monopoly on an international basis. Thus, competitive forces in many information markets are likely to be rather weak. This, in turn can be expected to raise important issues of national and international government policy relating to IPR and competition policy. The inherent conflict between maximizing prices in quasi-monopoly information markets and the social efficiency of societal distribution at marginal costs approaching zero will be a central issue in policy debates about information economy policies.
EXTENDING THE LIMITS OF MARKETS
The rapid rise of information markets is made possible primarily by the interaction of advances in computer and telecom technologies. Advances in the computer industry have pushed back the intensive limit of the potentia1 information market by reducing the costs of generating more and more kinds of data. Advances in telecom have pushed back the extensive geographical limit to encompass national and g1obal markets. However, itisimportant to distinguish the economic implications of the new technology facility systems that provide the infrastructure withinwhich information is generated and processed, and over which ittrave1s, that is, the hardware, and the information services themselves, that is, the information content that is provided over the facility systems.
What are the implications of markets without geographical limits, and an enormous expansion of information in the so-called information economy? The conventional economic theory of markets would suggest that more information and better communication can only improve the functiona1 efficiency of markets. It should lead to expanded competition and an increased role for the market in allocating resources in society.More considered analysis, in light of the experience of the last quarter century, raises questions about this oversimplified analysis. In particular, it raises the possibility that improved information and communication networks may be fundamental1y a1tering the structure of markets so that, at least inmany instances, they function less efficiently and play a less significant role in allocating resources.
With respect to knowledge and understanding, it is not at all clear that the new ICTS have led to an improved condition. Studies of transnational corporations have shown that those corporations with the most sophisticated and complex decision-making systems employing enormous volumes of information make no better decisions than firms making similar decisions with less information. Studies have shown that stock brokers, with access to many more sources of information for their stock purchase and sale decisions, have made no better decisions in the stock market than individuals who have not had access to modern sophisticated information sources. In light of the great expansion of information, most corporations have reduced their planning horizons because their ability to forecast the future has substantially declined, despite all of this additional information. With substantially improved statistical data and descriptive information about the workings of the economy, our understanding of the economic system is not demonstrably better than it was in the 1950s. Are the new information and communication technologies introducing more complexity, instability and uncertainty into our economic and social systems than the increased information will permit us to understand and control?
Moreover, the benefits of these technologies are not likely to be distributed uniformly across markets. Certain segments of society are likely to be made poorer in both absolute and relative terms. These new technologies permit many markets to be extended to the international and global level. But it is the largest national and transnational corporations and government agencies that have the greatest need for, and the ability to take full advantage of, these new opportunities. For them the geographic boundaries of markets are extended globally, and their ability to administer and control global markets effectively from a central point is enhanced. These changes have been a significant factor in stimulating the wave of mergers and takeovers involving the largest transnational corporations in recent years. The diseconomies of size and scope provided by increasing administrative costs and reduced effectiveness of information processing and communication in very large organizations can be reduced substantially by the application of information and communication technologies.